The effect of central bank transparency on exchange rate volatility

•Central bank transparency increases exchange rate volatility in developed countries.•No effect of central bank transparency in the case of developing countries.•Government transparency does not affect exchange rate volatility.•Results hold for various measures of exchange rate volatility. The incre...

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Bibliographic Details
Published in:Journal of international money and finance 2019-07, Vol.95, p.165-181
Main Author: Weber, Christoph S.
Format: Article
Language:English
Subjects:
Central bank transparency
Exchange rate volatility
Monetary policy
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Summary:•Central bank transparency increases exchange rate volatility in developed countries.•No effect of central bank transparency in the case of developing countries.•Government transparency does not affect exchange rate volatility.•Results hold for various measures of exchange rate volatility. The increase in central bank transparency has been one of the main developments in central banking in the past two decades. This leads to the question of the effect of central bank transparency on the volatility of exchange rates. According to theoretical considerations, more information could lead to either more precise forecasts or more noise trading. This raises the need for an empirical estimation of the relationship. The present study shows that the effect of central bank transparency on exchange rate volatility depends on a country’s development. While there is no effect of central bank transparency in the full sample and for developing countries, transparency increases exchange rate fluctuations in developed countries.
ISSN:0261-5606
1873-0639
DOI:10.1016/j.jimonfin.2019.04.002